The Viability of a Startup Company Specialized in Manufacturing and/or Distributing Travel Goods - Literature review Example

Table of contents Table of contents 1 Literature Review Section 3 Introduction 3 Main Review 3 Features of a Business Plan 4 Importance of Business Plan 6 Pros and cons of writing a Business Plan 7 Pitfalls in Making a Business Plan 7 Factors to consider when writing a Business Plan 8 Marketing Information 8 Operations Information 9 Financial Information 9 The Product's Fitness for use 10 Technological Possibility 10 Competitive Advantage 11 The Critical Mass of the Market 11 Phases in the Business Plan Feasibility Study 12 Phase One: The Concept and Its Background 12 Phase Two: Evaluating the Potential 13 Phase Three: Management Aptitude 13 Phase Four: Financial Analysis and Evaluation 14 Phase Five: Marketing Strategies 14 Phase Six; Timing and Scheduling 15 Phase Seven: Budget 15 Phase Eight: Environmental Acceptability, Sustain Ability and Fit 16 Phase Nine: Risks and Impasses 16 Phase Ten: Evaluation of the Costs and Benefits 17 References 18 Literature Review Section Introduction According to World Resource Institute at Washington DC (2006), a business plan has become the most essential ingredient for a business enterprise. As such, this chapter will review the literature related to the significance of business plan in an organization, with a primary focus on the Belgium Company. The literature reviewed companies a variety of sources like journals, textbooks, magazines, thesis and the internet. Main Review Hermanson (1981) defines a business plan basically as a written document that describes the goals and objectives of a business and lists the steps that are necessary be taken to achieve those goals and objectives. To be comprehensive, the plan needs to state the background of the concept, proprietor and industry. It also needs to describe the back drop against which the business will be established and perform besides defining the measurement milestone against which to gauge and review the performance. Hermanson (1981) further states that the plan also must explain the precise actions and structure for the execution of proposal for reference. The above theories find validation in the statements of Larson and Pyke (1988) who hold the view that a business plan is prepared by the entrepreneur describing the venture, the market situation the future directions and implementation strategies. The entrepreneur prepares the business plan prior to the implementation of a profitable business idea describing all the relevant external and internal elements. (Hermanson, 1981). Studies by Larson and Pyke (1988) dwell on the reasons why companies have to prepare a business plan. They believe that that it is essential as a tool to overcome the challenges when businesses aspects do not always correspond with the home country environment. Some such challenges are illustrated in the figure below: Poor provision of physical infrastructure Un-conducive legal Environment Poor Access to technology In appropriate institutional Infrastructure Market constraints Inadequate Research Information dissemination Figure 1: Source: Larson and Pyke (1988). The diagram indicates the different business environments that may exist in a country. These aspects should be considered writing a business plan. Features of a Business Plan Scholars have different thoughts opinions about the contents of a business plan. However, scrutiny reveals that at the core the basic elements are the some though they express their views in different ways. Houben and Van Looy (1995) suggest that a good business plan should have the following elements which also reflect in what other scholars state: These elements do not differ so much in what other scholars have written about. 1. Marketing plan: This provides a clear definition of a company’s products and services, an analysis of potential consumers, the company’s position in comparison to its competitors, and the strategies for selling the products. 2. Production Plan: This covers every aspect of the production process from machines and production capacity to stock management and quality control. 3. Personnel Plan: This describes the competencies needed within the organization, the selection of management team members and how to determine their salary. 4. Financial Plan: This addresses the founders’ goals, investors’ needs, budgets and all other financial aspects. In this section, it is important to consider economic factors that help in identifying the promoter’s ambitions relevant to the proposal. Besides, it will also include statement and description of the concept - what the business is all about in terms of need, adding value, providing a service; formulation of strategy through which it intends to achieve the objectives. These are usually translated to targets, setting out organizational structures and guidelines selected as optimal means of implementing the strategy and achieve the targets. It also provides a framework for decision making and sets out a defined hierarchy. Moreover, global and comprehensive preview of the business and its organic evolution from the opportunity idea and a statement of projected performance outcomes in quantitative and financial terms need to be included in order to know the financial capability of a company. Apart from this the projected allocation of expected and available resources to often uncoordinated demands, as well as a projected view of the inflow and outflow of resources need to be indicated. 5. Research and Development Plan: In case the product still needs to be developed further or when competition demands constant development of company’s technologies, the matter needs further exploration through research. Importance of Business Plan Kao and Stevenson (1985) say that business plan affords opportunity for allocation of resources out of prioritization of activities and facilities, which are usually inadequate. They further argue that business planning, in most cases, are undertaken against the recommendation of the feasibility study, which provides the factual basis. This is also instrumental in deciding the priority of activities and allocation of resources. Nick Cravalho (2000) states that business plans help investors in knowing the business capability of an entrepreneur and to determine whether to finance him or not. He urges that external advice can be a valuable source for founders of high technology startup companies. Business plan has the following importance which Larson and Pyke (1988) endorse: Helps determine the usability of the venture in a designated market. This enables evaluation of the strengths, weaknesses, opportunities and threats before venturing into the market. Provides guidance to the entrepreneur in organizing his/her planning activities. Serves as an important tool to help obtaining financing. Many entrepreneurs have the ideas but lack the resources or finances to start business. Business plan helps them to understand and to be able to convince their financers regarding how they will utilize the resources. Therefore, basing on the above principles by Larson and Pyke (1988), the case study of Belgium Toiletries Limited will be able to analyze the market environment and come up with a business plan for their company. Besides, information needs are also significant in business planning where business feasibility study is an essential to see if there are possible barriers to the success of the business concept. The information should focus on marketing, finance and production departments as Ronstart (1988) suggests. Pros and cons of writing a Business Plan While in preparing a business plan, one must understand the pros and cons associated with it. The pros include: It should be designed to indicate an analytical framework that enables the verification of what principles have been examined with discipline. It also should be considered as a marketing document that may be required by investors and partners. On the other hand, the cons of a business plan include factors like: the time and resources required and that it remains static unless used by the organization. In most cases it varies widely from the actual progression of the business, which may entail the preparation of another business plan (Columbia business school, 2007). Pitfalls in Making a Business Plan There can be various missteps that may interfere with the success of the plan. Some of these pitfalls include: Inadequacy of service given to the plan: This is usually a shift of focus from the most important aspects of the business plan. For instance, the individuals writing the business plan may focus on revenue and production and ignore financial aspects. Risk threat assessment overemphasis: Although it is important to identify the risks prior to planning, it is also significant to understand the need to complete a business plan. Some risks are so diverse that they cannot be avoided. Risks like disruption of power or natural disasters. Such risks are unavoidable, which means that spending much time on their analysis becomes a waste of time and resources. Insufficient analysis of the company’s supply chain: It is vital for an organization to examine their source of supply for their value added services. This means that it is important to carry out a thorough examination of the vendors and subsequently ensure continuity of their services. A pitfall may also arise when a business plan combines the pandemic plan and the traditional one. It is important to distinguish between these two aspects and thus plan them separately. Pitfalls may also result from the planner’s overemphasis on business plan documentation and use of incompetent plan participants. Similarly, lack of proper exercise aimed at reinforcing the plan and maintenance practices may hamper business plans. Factors to consider when writing a Business Plan Marketing Information Ronstart (1988) claims that researchers need to obtain market information for the product or service intended define the market and then determine the market size, market segment and market goals. With this information one will be able to prepare a business plan that will facilitate correct market appreciation. Phillip Kotler (2002) argues that each and every business must operate in a market. Therefore, a business entity should analyze and scrutinize its marketing capabilities. This will help in determining whether the business will be a success or a failure. Besides it will also act as an indicator to the investors financing the company. “If the business plan has not indicated the target market then that implies that it is not sure of why to venture in the business." Operations Information Ronstart (1988) further states that operation information entails the location i.e., business location and its accessibility to customers, suppliers and distributors; manufacturing operations, i.e. machine and assembly requirements; raw materials, i.e. availability, sources and costs of raw materials; skilled labor i.e., unique skills required, availability and need for training; space i.e., total amount of space required, availability and costs; and miscellaneous requirements, i.e. other requirements that support operations. Financial Information According to Jerzmanowski (2007), the financial information necessary to ascertain the feasibility of a new venture includes: i. Expected sales: Quantities, prices and costs for at least three years ii. Cash flow: Income and expenditure projections for at least three years iii. Balance sheet figures: Current and projected for three years Hermanson (1981), on the other hand, places the emphasis on the role played by feasibility study document as being the major element to be considered when preparing the business plan. He indicates that the role of a feasibility study is to evaluate the technical, economic and the financial elements of a business idea that points to viability and practical implementation. Hermanson (1981) contends that that the feasibility study involves the collection, analysis and examination of relevant data and systematic presentation of facts. Besides, it is an investigation and reporting of the facts relevant to the implementation of business ideas. A study conducted by Kao and Stevenson (1985) claims that the indicators to feasibility that are investigated include: The product’s fitness for use Technological possibility Competitive advantage The critical mass of the market The Product's Fitness for use Before a business entity ventures into the market, it needs to find out whether the product will match the standard of the environment and also if it is fit for use in that area. This aspect included in the business plan will allow the investor to identify the product which the business intends to introduce in the market. Technological Possibility Kao and Stevenson (1985), recognize that different countries have different technology interfaces and hence entrepreneurs must consider the technological aspect in the business plan to know how to deal with various business aspects, which render comparative advantage over the competitors. Competitive Advantage On the other hand, Ronstart (1988) feels that competitive advantage must be considered business plans in order to gauge the strength of companies over the competitors. He further states that for any business to create a niche in the market it needs to have a clear understanding of its competitive advantage. Every product has its market leader and consumers always compare a product in relation to the market leader. If product quality falls lower than the market leader, it will not fare well. The author thus claims that creating competitive advantage ensures a high quality and helps in gaining a niche in the market. Houben and Van Looy (1995) emphasize the importance of evaluating competitive factors such as product quality, reliability, durability, quick deliverability, good quality service, a good selling policy and competitive pricing etc while conducting market analysis. The Critical Mass of the Market Again, Ronstart (1988) reiterates that knowing the market size of the potential product becomes an important aspect to the business plan. Therefore, he feels that companies should undertake a thorough investigation on the mass of the market and include it in the business plan. The feasibility study is expected to answer the following significant questions in the business plan: (Kao & Stevenson, 1985). I. What resources are required qualitatively and quantitatively? II. Are they available? How can they be obtained and mobilized? III. What are the technical requirements? Are these technologies available? IV. What management capability is required? is it available? How can it be secured? V. What is the marketability of the product /service? VI. What are the financial implications and outcomes of the proposal? VII. What are the social and environmental consequences? VIII. How could the negative impacts be reduced or eliminated? IX. What are the future opportunities? X. What would be the constraints to the continuity and profitability of the opportunity? XI. How can the company overcome, reduce or eliminate the impasses? Phases in the Business Plan Feasibility Study The main focus of the thesis is to analyze the major aspects before venturing into any business. Kao and Stevenson (1985), indicates that once an entrepreneur conducts the feasibility study of the environment and implements the business plan, it becomes a simple process to operate. Thus it transpires that the key to success lies in the proper analysis of the environment through a feasibility study, comprising the following phases: Phase One: The Concept and Its Background Identifying and selecting a possible business opportunity that matches with one's background and abilities is a crucial factor that determines the success of a business. (Kao & Stevenson, 1985). Shaughnessy’s (1992) views also reinforce the above concept when he indicates that the investigation and reporting in this phase consists mainly concerns the entrepreneurial concept and providing the background information about the promoter, the industry, and the impressions of the viability of the idea. The author further states that some of the information may also relate to how the promoter understands about himself and the business idea. Thus the information provided will be both empirical and anecdotal inferences lo the implementation of the idea. He further states that such information should be included in the business plan for financers to understand the nature of the business. Phase Two: Evaluating the Potential Once Phase I, covering compatibility assessment, is completed an analysis of the target market, the location and the industry, is required to be done. Besides, the entrepreneur also needs to evaluate competition, technology and manpower. (Shaughnessy, 1992). This entails an in-depth analysis of the industry’s characteristics, trends and prognosis. Other aspects to consider are the location; customers, ease of market entry and competition. Further, an evaluation is also necessary to determine the promotional and advertising tactics available, and their relevance, product development processes, proprietary status, technological processes, methods and infrastructure, quantification of inputs, and outputs and systems; human resources etc are the remaining considerations. The above exercises will facilitate adequate information to formulate different strategies on how to cope with challenges in the business. The author continues to indicate that this information will also be important in the business plan, for helping the investors and financiers to understand the business. Phase Three: Management Aptitude According to Kreitner Robert (2000), effective management aims to organize, direct, coordinate and control the resources and functions to obtain optimum results. He further argues that establishing systems and programs will facilitate communication, decision making, authorization, responsibility and accountability. He also adds that management phase of the feasibility study analysis should comprise management requirements, operative management systems necessary, organizational structures, management aptitude availability, qualification and development options, remuneration options for reward, motivation and retention. Phase Four: Financial Analysis and Evaluation Ansoff (1995) in his book on "Corporate Strategy" indicates that the viability of a venture is indicated by relating the implications of financing requirements to the operational outcomes. While Krajewski et al (2007) opine that in this phase, the financing requirements are evaluated, and costs and results are projected. Specifically, this entails projecting: the financial structure - requirements arid potential sources; the cost structure, pricing schemes and expected outcomes; financial performance tools and outcomes, analysis of outcomes to investments. Phase Five: Marketing Strategies According to Kotler (2003), marketing strategies refer to the schemes, methods and tactics employed in packaging. This aspect enhances product value to attract customers and influences their buying decisions. The study focuses on the analysis of consumer values and expectations relative to the product, purchase points and times, awareness and influences on buying decisions, pricing, and brand image. The author further maintains that the analysis of marketing strategies should consist in comparison and evaluation of: distribution systems available, their effectiveness and costs, product configurations possible to influence the buying decision, methods and media available for creating awareness and eliciting consumer loyalty, pricing methods and their relevance to buying decision, methods and systems for creating and sustaining a positive image and the ethical concerns in marketing. Moreover, Kotler shows that any business will be able to handle the marketing pressure if proper strategies are implemented to solve the marketing problems. Phase Six; Timing and Scheduling This is another important factor to consider while preparing a business plan to start a company. Kotler (2003) argues that timing and scheduling of the implementation contributes to commitment. It is, therefore, imperative that analysis be made of the establishment of the operational systems relative to time. Besides, consideration should be given for the priority and implementation stages. The requirements at each stage and the time to be allocated for each activity including the test practice and actual launch of full-fledged operations, should be predetermined. (Kotler, 2003 p. 44). Phase Seven: Budget Sinha (2001) defines budget as a financial forecast of the resource allocations and outcomes against given future estimations. He categorizes the specific budgets in the business as: cash flow budget; material requirement processing; products demand and delivery; production, sales, income and expenditure, pro-forma profit and loss of statement. On the other hand, Kao and Stevenson (1985) state that budgeting entails the establishment of performance standards against which to measure and control results. The budget constitutes a part of the financial assessment of the business and it reflects the financial performance of the company in the next few years. No business intends to exist only for a certain period of time and then close down because it cannot sustain itself in the market. (Sinha, 2001). Phase Eight: Environmental Acceptability, Sustain Ability and Fit According to Drucker (1995), the environmental impacts and influences of the project bear on its continuity and viability. It is therefore necessary to identify the environmental factors that are conducive to feasibility and viability, evaluate their impacts and analyze systems and methods to remove the negative influence. Slack, Chamber and Johnston (2007) maintain that analysis of the technological environmental implications, the influence on the ecology, social cultural structures and systems, and resource renewal are necessary aspects of a business plan. Drucker (1995) facts that this phase need to focus on: raw materials - sources, pollution and destruction; processes products and by products, and how they impact on the environment; products- how they affect the consumers - health, values; ethical concerns, legal regulatory provisions etc. Sonny (2006), adds further insight that with such elements taken into account, the business plan will be capable of providing the stakeholders the expectations of the business before its commencement. Phase Nine: Risks and Impasses Gulati and Garimo (2006) hold the view that in the structuring and operation of the business there will emerge circumstances and events that negatively influence continuity and viability. These may arise owing to internal management deficiencies and ineptitude or as a result of external environmental dynamics. It is paramount these be identified, analyzed and be prepared for. They offer a solution by scrutinizing the following factors: operational policies and management systems, employee relations and organization, procurement and scheduling programs and procedures; change - technological, competition, psycho graphic, demographic structures, regulations and consumer advocacy, resource extraction and environmental impacts. They feel that participative decision making and democratic organization, establishment of entrepreneurial management structures and systems, insurance, ethical concern and positive public posturing will obviate the problems to a great extent. Phase Ten: Evaluation of the Costs and Benefits According to Stevenson (2007) the contributions of the project to the socio-economic improvement provide the justifications of the project investment in the macro environment. Both positive and negative effects have to be identified in the context of the impacts and contribution for justificatory relationship to all the macro environmental factors - both quantitative and qualitative. A weighting system may be adopted to arrive at rational values. The author argues that this will help the stakeholders to know the expectation of the business. Dilworth (1993) indicates that the business plan in this case will follow the guidelines of the feasibility study since no business is created in vacuum. Having assessed the feasibility study the entrepreneur will formulate a business plan. The market feasibility will help the entrepreneur write a business plan since he/she will be having all the information to analyze the strengths weaknesses, opportunities as well as threats. When a start up business considers the above requirements, and come up with a business plan based on the aforementioned aspects, as seen in the literature review, the business will be able to get investors and financiers as they prepare to launch the company or even for opening up new markets. References Abruzzo, T 2009, Pitfalls in creating a successful business continuity plan. Retrieved November 21, 2009, from http://www.contingencyplanning.com/articles/72859/ Ariss, K & Sonny, S 2006, Factors affecting the adoption of advanced manufacturing technology in small firms. Retrieved October 2, 2009, from http://www.highbeam.com/doc/common/controls/ Columbia Business School, 2007, Writing a winning business plan: The entrepreneurship program. 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Hermanson, E R 1981, Financial accounting, 4th Edition, California, CA: Irwin Kao, J & Stevenson, H 1985, .Entrepreneurship: What it is and how to teach it, Cambridge, MN, Harvard Business School. Kotler, P 2003, Marketing management, New Jersey, NJ: Prentice-Hall. Krajewski et al, 2007, Operatoins management, processes and value chains, (8th ed). New York: Pearson Prentice Hall. Kreitner, R 2000, Management, Houghton Nifflin Company, 7th Edition. Larson, U & Pyke, K 1988, Fundamental accounting principles, 11th Edition, USA: Irwin Publishers. Lischeron, J & Cunningham, J B 1991, Defining entrepreneurship, Journal of small business management. Ronstart, R 1988, The corridor principle, Journal of business venturing 3, 31-40 Shaughnessy, O 1992, Competitive marketing: A strategic approach, London, UK: Routledge. Sinha, I 2001, Cost transparency: The nets real threat to prices and brands. Harvard Business Review. Slack, N Chamber, S & Johnston, R 2007, Operations management,(5th ed), Edinburg: Prentice Hall. Stevenson, J W 2007, Operations management,(9th ed).New York: McGraw-Hill Publishers. Virtannen, M 1996, The role of different theories in explaining entrepreneurship, Helsinki school of economic and business administration, small business centers. Finland SF- 50100 Mikkeli. Read More